European Finance Ministers Revisit Plans for Failing Banks

BRUSSELS — With their plans to create a banking union facing deadlock, European finance ministers promised Tuesday to explore new ways to assuage critics who contend that their proposed system to deal with failing banks would be too feeble, too cumbersome and take too long to introduce.

Under one innovation discussed, the fund intended to wind down banks might be able to borrow temporarily on the financial markets to increase its financial firepower.

Alternatively the 10-year timetable for building the fund and sharing the risk of bank bailouts might be reduced to seven or even five years.

Though European finance ministers have agreed among themselves on their resolution fund, they also need the approval of the European Parliament, which faces elections in May.

The talks on Tuesday were the start of intensive negotiations to try to reach a final deal on a banking union, which is considered one of the crucial changes needed to strengthen the euro zone.

Policy makers believe that the creation of the banking union, which also includes a single supervisory authority, under the auspices of the European Central Bank, will help restore the credibility of the 18-nation currency area after the crippling debt crisis.

At issue now is the structure of a so-called Single Resolution Mechanism intended to decide when and how to wind down struggling lenders. This would be financed by a tax on the financial sector of the member countries, to raise 55 billion euros, or about $75 billion, over 10 years. Private bondholders would have to take losses in a failed bank, and the remainder of a bailout would ultimately be shared among the whole euro zone banking sector in a system called mutualization.

European lawmakers have attacked several aspects of the blueprint. Its critics also include the European Central Bank, which wants to shorten from 10 years to five the period during which the €55 billion fund would be built up and risks shared.

An error has occurred. Please try again later.

You are already subscribed to this email.

Germany, the biggest euro zone nation, is opposed to a tax on German savers being used elsewhere in the euro zone.

On Tuesday the Dutch finance minister Jeroen Dijsselbloem, who leads the meetings of euro zone finance ministers, said speeding up the creation and mutualization of the fund would be “politically very difficult.” He suggested instead allowing the fund to go to the financial markets to borrow money in the years before it was fully financed by bank levies.

The question was “who will put money into the fund whilst the money is still to be collected from the sector,” he said.

“There are different ways to do this and that is what we are now discussing,” he added.

Germany’s finance minister, Wolfgang Schäuble, said if the 10-year time span was to be shortened, then money would have to be raised more quickly from bank levies — something several countries want to avoid.

“If 10 years are too long let’s speed up,” he said, but this must not be just the “speed of mutualization” but also of financing the fund. “We must do it in parallel,” he said.

Mr. Schäuble also appeared reluctant to allow the fund to borrow as an entity, saying that money raised on the financial markets “must depend on the approval” of each member state that contributes its bank levies to the fund.

Several other issues also need to be resolved if an agreement is to be reached with the European Parliament. Lawmakers there argue that decision-making on bank closures is too complex and cumbersome, involving the European Commission, the executive of the European Union, ministers from the member states and the Single Resolution Mechanism.